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Galleon, JPMorgan, UBS, Google, BofA, AIG in Court News

An ex-Galleon Group LLC trader and expert-networking consultant were sentenced yesterday to 10 years and four years in prison for their roles in a nationwide insider-trading scandal, just three weeks before Raj Rajaratnam, the man at the center of the investigation, is to learn his fate.

Zvi Goffer, the trader, and Winifred Jiau, who worked for Primary Global Research LLC, were convicted in June in separate Manhattan federal court trials. Jiau was sentenced yesterday to four years after the government asked for as long as 10 years. Goffer received a 10-year term following a U.S. request that he serve almost 13 years.

Rajaratnam, 54, co-founder of Galleon, was found guilty in May of directing the largest hedge-fund insider-trading ring. He should be given a prison term of as long as 24 1/2 years when sentenced, prosecutors said. His sentence was postponed yesterday from Sept. 27 to Oct. 13.

The sentences for Goffer and Jiau are more severe than in typical insider-trading cases where a defendant gets and trades on information only once, said John C. Coffee Jr., a professor at Columbia Law School in New York.

“These were professionals engaging in this as their regular course of business,” Coffee said. “They went about it systematically.”

Dozens of people have been charged with participating in overlapping insider-trading rings by the office of U.S. Attorney Preet Bharara in Manhattan. The Goffer and Rajaratnam trials featured phone conversations secretly recorded by the Federal Bureau of Investigation. The two, along with Jiau, were convicted based partly on the testimony of co-conspirators cooperating with prosecutors.

Jurors at Jiau’s trial saw instant electronic messages that a hedge fund analyst sent his boss while they were on the phone with her. The analyst also recorded the calls.

Goffer, who co-founded Incremental Capital LLC after he was fired from Galleon in 2008, was convicted of all 14 criminal counts against him. Goffer’s brother, Emanuel, and Michael Kimelman were convicted at the same trial. Prosecutors said Zvi Goffer headed a ring that made more than $10 million trading in 3Com Corp., Axcan Pharma Inc., Kronos Inc. and Hilton Hotels Corp. based on information misappropriated by two lawyers.

Prosecutors had asked U.S. District Judge Richard Sullivan to send Goffer to prison for as long as 12 years and seven months.

Goffer, 34, claimed he’s a changed man who deserves a lesser sentence.

Jiau, 43, of Fremont, California, was convicted of one count each of conspiracy and securities fraud. A jury found her guilty of passing earnings and other information about Nvidia Corp. (NVDA) and Marvell Technology Group Ltd. (MRVL) to Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and Samir Barai, founder of New York-based Barai Capital Management LP.

Prosecutors argued Jiau should get eight to 10 years in prison in papers filed with U.S. District Judge Jed Rakoff. Jiau’s lawyers downplayed her role in the chain of inside-traders and called the government’s suggested sentence “draconian.”

“If Ms. Jiau was at the ‘heart’ of anything in this case, it was of the gang that couldn’t shoot straight,” they said.

The cases are U.S. v. Goffer, 10-cr-00056, and U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

AT&T Says It Wants Trial of U.S. Suit to Block T-Mobile Deal

AT&T Inc. (T) is eager for a trial of the U.S. Justice Department’s lawsuit challenging its proposed acquisition of wireless carrier T-Mobile USA Inc., a lawyer for the company said.

There was no talk of settlement yesterday in federal court in Washington as Mark Hansen, an attorney for AT&T, told U.S. District Judge Ellen Segal Huvelle that the company wants to get to trial as quickly as possible. Huvelle, who had earlier told the parties to come prepared to discuss settlement prospects, set a trial date for Feb. 13.

“We’re seeking a prompt trial because we’re very interested in closing this transaction,” Hansen, of Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC in Washington, said during the hour-long hearing. “We need to have the cloud of uncertainty removed. We’re already a month beyond where we want to be.”

The Justice Department sued Dallas-based AT&T and Bonn-based Deutsche Telekom AG (DTE)’s T-Mobile unit on Aug. 31, saying a combination of the two companies, which would make AT&T the biggest U.S. wireless carrier, would “substantially” reduce competition. Last week, seven states joined the government’s case seeking to stop the $39 billion deal.

AT&T is still “hopeful” it can address the Justice Department’s antitrust concerns and reach a settlement, Michael Balmoris, an AT&T spokesman, said in an e-mail after the hearing.

The case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).

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Servier Founder Charged in Deaths Granted 4 Million-Euro Bail

Jacques Servier, chairman of France’s second-largest drugmaker, must post bail of 4 million euros ($5.51 million) and his freedom may be restricted as he faces charges that he helped hide the risks of a drug suspected of causing the deaths of as many as 2,000 people.

Servier and five affiliated companies of Laboratoires Servier, which he founded, were charged yesterday by French magistrates, the company said in a statement. Servier must provide a financial guarantee of 6 million euros by Dec. 15, according to the release.

Servier, 89, was charged with involuntary manslaughter, aggravated deception and fraud, the newspaper Le Monde reported, citing his lawyer. The company remains innocent until proven guilty and will “finally be able to defend itself in a judicial setting,” it said in the statement.

Mediator, the diabetes drug at the root of the case, was sold in France for 33 years until it was withdrawn in November 2009 on safety concerns. It was widely used as an appetite suppressant.

JPMorgan, Citigroup Seek Dismissal of Thornburg Lawsuit

JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and other banks asked a judge to dismiss a lawsuit by defunct Thornburg Mortgage Inc., saying the complaint didn’t adequately show that fraud occurred.

Trustee Joel Sher sued the banks for $2 billion in April, alleging they helped push Thornburg, now called TMST Inc., into a “free-fall” bankruptcy. Making “unjustified” margin calls, the banks extracted more than $700 million of margin and interest payments from Thornburg, then sold their collateral and left the company to file for Chapter 11 protection during the credit crisis in May 2009, Sher claimed.

The banks, including Credit Suisse Group AG (CSGN), Royal Bank of Scotland Plc and UBS AG (UBSN), or their affiliates, were trading partners of Thornburg’s in repurchase and swap transactions used to finance its mortgage business, the banks said in a Sept. 20 filing in U.S. Bankruptcy Court in Baltimore. Under the repo agreements, they could make margin calls at any time if the counterparty had a margin deficit, they said.

Sher didn’t immediately return a phone call seeking comment on the banks’ filing. He has updated the suit since it was initially filed.

JPMorgan was named in the TMST suit because it bought assets from Bear Stearns Cos., a lender to Thornburg. Sher filed at least eight lawsuits from April 28 to April 30, seeking money from Barclays Plc (BARC), Goldman Sachs Group Inc., Bank of America Corp. (BAC) and other companies.

The bankruptcy case is Thornburg Mortgage Inc., 09-17787, U.S. Bankruptcy Court, District of Maryland (Baltimore).

UBS Moved Executive in FSA Risk-Management Case to Zurich

A UBS AG executive accused of risk-management failures and facing a potential fine by the U.K. finance regulator was moved as early as 2008 from London to Zurich by Switzerland’s biggest bank.

John Pottage, the former chief executive officer of UBS’s wealth-management division in London, will challenge the Financial Services Authority at a court hearing in November over its attempt to fine him for not ensuring the unit had controls to prevent unauthorized trades that began in 2006, according to three people familiar with the case. He now works in risk management, two people with knowledge of his role said.

The FSA fined UBS 8 million pounds ($12.5 million) in 2009, at the time the third-largest penalty imposed by the regulator, for failing to prevent employees in the international wealth-management business from making as many as 50 unauthorized trades a day with funds from at least 39 customer accounts. The case is an example of UBS failing to police errant trading in London years before the bank said this week it lost $2.3 billion from unauthorized trades.

“Now that the machine has got going, every single bad thing is going to come out,” said Fred Ponzo, a capital markets adviser at Greyspark Partners in London.

Pottage was authorized by the FSA until Dec. 15, 2008, according to the watchdog’s website. He had authorization for roles including chief executive, significant management, director, apportionment and oversight, investment adviser and insurance mediator.

Pottage declined to comment when reached at a UBS number in Zurich. Yves Kaufmann, a UBS spokesman in Zurich, also declined to comment.

Chris Hamilton, an FSA spokesman, declined to comment. Tobias Lux, a spokesman at the Swiss regulator, declined to comment on the case. Pottage’s lawyer, John Fordham, also declined to comment.

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Madoff Trustee Loses Bid to Quash Request for Rehearing

The liquidator of Bernard Madoff’s firm lost a bid to quash investors’ request for a new hearing on how he calculates who gets compensated for losses in Madoff’s Ponzi scheme.

The U.S. Court of Appeals in New York said Aug. 16 that trustee Irving Picard can ignore fictitious profits on money Madoff never invested when calculating losses and who is entitled to be repaid. Some investors who wouldn’t get paid under the formula asked for a “rehearing,” saying the appeals court ruled differently in a previous case.

Picard’s move to strike the request was denied, according to a court filing Sept. 20.

A group of Madoff investors had urged the court to require Picard to use their final account statements, which included fictitious profits on money Madoff never invested, to determine losses. Picard’s formula limits the number of investors who can claim money, and cuts the size of many claims.

Asking the court earlier this month to refuse to rehear the issue, Picard said in a filing the investors failed to follow the court’s rules. Some investors filed a 24-page petition without asking for permission to file an oversized brief, he said. Told by the court to shorten it, “the petitioners seek to dodge the court’s order,” Picard said.

“They split the arguments into two 15-page petitions, put some of the appellants on one petition and the rest on the other, and ask the court to consider the petitions as one,” Picard said. “The court should strike the newly filed petitions.”

Madoff, 73, is in a federal prison in North Carolina, serving a 150-year sentence for the fraud.

The case is In re Bernard L. Madoff Investment Securities LLC, 10-2378, 2nd U.S. Circuit Court of Appeals (Manhattan).

Google Says Oracle Seeking $2 Billion in Android Dispute

Google Inc. (GOOG) said Oracle Corp. (ORCL) lowered its damages request to at least $2 billion in a patent and copyright dispute over Android software, according to a court filing.

Google, which said the estimate includes $1.2 billion in damages for unjust enrichment in 2012 alone, asked a federal judge to exclude parts of the calculation that it says aren’t supported by the evidence.

In July, U.S. District Judge William Alsup in San Francisco threw out Oracle’s earlier estimate that it’s entitled to as much as $6.1 billion in damages in a lawsuit claiming Google infringed its Java patents when it created the Android operating system, now running on more than 150 million mobile devices.

Oracle’s new damages report “ignores governing law and the guidelines of this court’s July 22, 2011, order,” Google lawyer Robert Van Nest said in a letter to Alsup Sept. 20.

Alsup ruled in July that a new estimate should start as low as $100 million, a figure that Mountain View, California-based Google was offered in 2006 to license Java from Sun Microsystems Inc. Google rejected that offer by Sun, which Oracle later acquired.

Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, the largest maker of database software, declined to comment on the Google filing.

The two companies have made little headway this week in negotiations aimed at resolving the lawsuit, a person briefed on the talks said. Google Chief Executive Larry Page and Oracle CEO Larry Ellison participated in a settlement conference that lasted as long as 10 hours on Sept. 19 and returned to federal court in San Jose, California, yesterday for further meetings with a magistrate judge.

The case is Oracle America Inc. v. Google Inc., 10-03561, U.S. District Court, Northern District of California (San Francisco)

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Trials

Rambus Was ‘Dethroned’ by Intel, Micron Attorney Tells Jury

Rambus Inc. (RMBS)’s computer memory failed to become an industry standard because it was “dethroned” by Intel Corp. (INTC), not as a result of collusion by rivals, a lawyer for Micron Technology Inc. (MU) told a jury.

In closing arguments at a state-court trial in San Francisco, William Price, a lawyer for Micron, said yesterday that Rambus was aware of technical problems with its version of dynamic random access memory, or DRAM, when it signed a 1996 contract to work with Santa Clara, California-based Intel Corp., the world’s largest chipmaker. The jury began deliberating yesterday.

The relationship was “conceived in fraud,” Price told jurors. “Intel lived with Rambus” in an attempt to develop Rambus-designed memory, or RDRAM, into a product, he said.

“What Intel concluded at the end was RDRAM was not the product they thought it was, and that Rambus was not the company they thought it was,” Price said. Intel “selected Rambus to become king, and Intel dethroned Rambus.”

Rambus contends that Boise, Idaho-based Micron and Ichon, South Korea-based Hynix Semiconductor Inc. (000660) colluded to cut the prices of their own DDR, or double data rate, memory chips and deserted their commitment to produce RDRAM, relegating it to a niche role.

Rambus, which doesn’t make the chips it designs, said it would have made $3.95 billion in royalties without the alleged conspiracy. Under California law, a jury finding of damages in that amount would be automatically tripled to $11.9 billion.

The case is Rambus Inc. v. Micron Technology Inc., 04-0431105, California Superior Court (San Francisco).

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Banks Don’t Provide Swap Costs, JPMorgan Executive Tells Court

Banks don’t typically disclose what they’re charging municipalities to arrange derivatives, a practice that isn’t required, Antonia Creanza, a JPMorgan Chase & Co. banker on trial for fraud, told a Milan court.

“Every time I sold a derivative to a public administration, even before getting to the details, the first question was always, ‘How does the bank make money?’” Creanza told the court yesterday under questioning by her lawyer. “I would explain that we would retain a margin. Never has a legal adviser told me, ‘Look you need to detail the gross margin,’” she said.

JPMorgan, UBS AG, Deutsche Bank AG (DBK) and Depfa Bank Plc are on trial on charges of mis-selling swaps to Milan, derivatives that adjusted payments on a 1.7 billion-euro ($2.4 billion) bond offering from 2005. Prosecutor Alfredo Robledo said the banks misled Milan by telling the city it could save about 55 million euros with the bond sale and a series of swaps. Robledo says the banks earned 101 million euros in hidden fees. The banks deny the charges.

After selling swaps to municipalities for UniCredit SpA and a unit of Dexia SA, Creanza told the court she joined JPMorgan’s interest-rate derivatives team in 2004, then headed by Antonio Polverino. JPMorgan was one many banks that courted Milan, she said.

From December 2004 to March 2005, before Milan’s public tender for the financing, JPMorgan discussed various financing scenarios with the city, Creanza told the court.

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Lehman to Drop Appeal of Ruling in $11 Billion Barclays Suit

Lehman Brothers Holdings Inc., which is gathering creditor support for a $65 billion liquidation plan before a November vote, said it will drop its attempt to collect $11 billion from Barclays Plc in a dispute over the sale of Lehman operations in 2008.

Lehman also won’t appeal a Sept. 14 ruling by U.S. Bankruptcy Judge James Peck in Manhattan rejecting its claim that Barclays owed about $500 million for allegedly unpaid bonuses. Peck previously ruled against Lehman in the larger suit against London-based Barclays.

“While there are aspects of the decisions with which we do not agree, we are also cognizant of the burdens that continued litigation of these issues would place on the court and the assets of the estate,” the defunct firm said in a statement yesterday.

After appealing Peck’s ruling in the bigger suit, Lehman said yesterday it “respects the time and effort the court has devoted to the serious issues raised by the estate.” Because of the cost of continuing the litigation, Lehman said, “we have determined that we will not pursue these issues through appeals, believing that the resources of the court and the estate will be better employed at this point to move the bankruptcy toward a conclusion.”

Lehman, once the world’s fourth-biggest investment bank, has spent about $1.4 billion on lawyers and managers since its 2008 bankruptcy filing, the largest in U.S. history, with assets of $639 billion.

The New York-based firm’s bankruptcy became the most expensive in U.S. history in April 2010, when it topped the $757 million cost of energy trader Enron Corp.’s three-year liquidation, according to data compiled by Lynn LoPucki, a bankruptcy-law professor at the University of California, Los Angeles.

Lehman’s creditors range from banks and hedge funds to the New York Giants and Abu Dhabi Investment Authority, as well as individuals who hold Lehman bonds. Lehman filed for bankruptcy on Sept. 15, 2008.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Verdicts/Settlements

BofA’s $8.5 Billion Mortgage-Bond Deal Defended by Investors

A lawyer for a group of investors that includes BlackRock Inc. (BLK) defended their $8.5 billion mortgage-bond settlement with Bank of America Corp., saying a delay in getting court approval costs them money.

“They believe this is a very positive settlement,” Robert Madden, who represents 22 institutional investors, told a federal judge in Manhattan at a court hearing yesterday.

U.S. District Judge William Pauley heard arguments about whether the settlement should be considered for approval in federal court or returned to state court in New York, where it was originally filed.

Bank of New York Mellon Corp., the mortgage-bond trustee that sought approval for the settlement, opposes moving the case to federal court. The removal by an investor group -- Walnut Place LLC and related entities -- threatens to “significantly delay” the state-court proceeding, the bank said in a court filing.

“Delay hurts investors,” Madden said in an interview after the hearing. When Bank of New York filed the proceeding in state court, a judge set a November hearing to consider approval.

The proposed settlement resolves a fight with the institutional investors, which wanted Bank of America to buy back home loans that were packaged into bonds by Countrywide Financial Corp. Bank of America, based in Charlotte, North Carolina, acquired Countrywide in 2008.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-5988, U.S. District Court, Southern District of New York (Manhattan).

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Liberty Media Fends Off Bank of New York Challenge to Spinoff

Liberty Media Corp. (LINTA) fended off Bank of New York Mellon Trust Co.’s legal challenge to its splitoffs of the Liberty Capital and Liberty Starz tracking stocks.

The Delaware Supreme Court yesterday upheld a ruling that clears the way for Liberty, controlled by billionaire John Malone, to transfer assets of the two tracking stocks to shareholders.

The splitoffs are part of Malone’s efforts to simplify Liberty’s financial structure and make it more attractive to investors, Barton Crockett, an analyst at Lazard Capital Markets Ltd. in New York, said last year.

Kevin Heine, a Bank of New York spokesman, declined to comment on the court ruling in an e-mailed statement. Liberty Media executives plan to complete the splitoff of the units tomorrow, Courtnee Ulrich, a company spokeswoman, said in an e-mailed statement.

As part of the deals, officials of Englewood, Colorado-based Liberty want to redeem outstanding shares of the units in exchange for shares in a newly formed company.

Liberty Starz holds Liberty Media’s interest in television company Starz Entertainment, according to the parent company’s website. Liberty Capital holds assets, including production and distribution company Starz Media LLC, and investments in Time Warner Inc. (TWX), Time Warner Cable Inc. and Sprint Nextel Corp. (S)

The Supreme Court case is Bank of New York Mellon Trust Company, N.A. v. Liberty Media Corp., 284, 2011, Delaware Supreme Court (Dover). The Chancery Court case is Liberty Media Corp. v. Bank of New York Mellon Trust Co., 5702, Delaware Chancery Court (Wilmington).

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Litigation Departments

AIG Hires Ex-IRS Deputy Counsel Potter to Protect Tax Assets

American International Group Inc. (AIG), the bailed-out insurer, hired Clarissa Potter, former deputy chief counsel of the Internal Revenue Service, to help protect tax assets accumulated by the firm.

Potter will be deputy tax director, reporting to Tal Kaissar, director of tax, the insurer said yesterday in a statement.

Losses at New York-based AIG and its subsidiaries helped rack up more than $25 billion of so-called deferred tax assets as of Dec. 31 that may lower obligations to governments. Chief Executive Officer Robert Benmosche, 67, said last month the insurer is assembling a “world-class team” to manage the assets and that they may be used for buybacks when AIG is prepared to repurchase stock.

“The complexity of AIG’s global structure requires a holistic approach to compliance with domestic and international tax law,” Kaissar said in the statement. Potter’s “first-hand understanding of tax policy makes her uniquely positioned to help AIG in this regard.”

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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